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New ways to cut costs and pay less tax

Keeping costs low is a key battle for investors. At least once a year you should take a look at how to whittle away some costs, whether it is by introducing cheaper core holdings or transferring your investments to an investment platform with lower fees. You may be able to benefit from a price war between providers of tracker funds and exchange traded funds (ETFs) over the past year. In last week's ETF portfolios, we saw expert David Liddell swapping iShares MSCI Europe ex-UK UCITS ETF (IEUX) with a total expense ratio (TER) of 0.4 per cent for Vanguard FTSE Developed Europe ex UK UCITS ETF (VERX) with a TER of 0.12 per cent.

A year ago, some investors switching fund platforms to take advantage of lower fees were being forced to wait up to five months for the process to complete. But a year on and most of the large DIY investment platforms are signed up to a new automated electronic system provided by Altus Business Systems, which means in-specie transfers, where your fund holdings are re-registered to the new platform, are completing much more quickly. The average time for a transfer is now six days rather than six weeks.

This also means that the argument for charging excessive exit fees for leaving a platform when the vast majority of transfers are automated is becoming increasingly difficult to defend.

 

Platforms: Cost rules of thumb

A new survey of the best online investment platforms from Boring Money has identified the three platforms that will typically be among the cheapest for a variety of different-sized portfolios.

£3,000 in an individual savings account (Isa)

1.Charles Stanley

2.AXA

3.Fidelity

£10,000 in an Isa

1.Charles Stanley

2.Bestinvest

3.Willis Owen

£10,000 to £50,000 all in, with an Isa and starting a self-invested personal pension (Sipp)

1.Fidelity (funds only)

2.Charles Stanley

3.Bestinvest

£50,000 to £100,000, with Isas and Sipp

1.Interactive Investor

2.Hargreaves Lansdown

3.Charles Stanley

£100,000 +

1.Interactive Investor

2.AJ Bell

3.The Share Centre

Many DIY investors say they have been burnt by bad advice in the past and prefer to take full responsibility for investment decisions, which means avoiding so-called experts in the financial services industry. But over the past year, the tax regime for investment has changed significantly and keeping on top of how this affects your portfolio can be a major headache. The focus of our Portfolio Clinic is often the investment decisions that the investor is making and our experts often disagree on this, with many readers offering their own views on the website - often disagreeing with the experts.

If we gave as much focus to tax planning in this space, then there would often be several different strategies that you could take to improve tax efficiency.

Good tax planning is no longer as simple as using pensions and Isa wrappers in full. There are decisions to be made over how to structure retirement income more tax efficiently and how best to pass on assets to your family after you die.

Over the summer we have written several articles on the new pensions freedoms, plus forthcoming changes to dividend taxation and tips on using your capital gains tax allowance. There are certainly plenty of new tax planning opportunities, and you can read about these in the Pay Less Tax section of the Investors Chronicle website.

But if your affairs seem complex, then it might be worth getting a professional involved - such as a chartered or certified financial planner. And here there is a bit of good news. A new study from unbiased.co.uk claims the cost of most financial advice remains unchanged from last year, despite the complications of pension freedom.

  

Cost of advice

Advice scenarioMedian fee charged 2013Median fee charged 2014Median fee charged 2015
Hourly fee£175£150£150
Initial financial review and report£500£500£500
Advice on a £20 a month pension contribution£500£500£580
Advice for investment strategy for a £50,000 inheritance for a 50-year-old seeking medium-term growth£1,500£1,500£1,500
Advice on converting a £100,000 pension fund into a lump sum and annuity£1,350£1,500£1,750
Advice on a £200,000 pension pot (client requires full advice)na£3,000£2,500
Advice on setting up a drawdown scheme on a £300,000 pension fund£3,000£3,000£3,500

Source: Unbiased.co.uk